Commentary on Radio & Audio

August 23, 2012

August 23, 2012

There's a lot of buzz about a patent Apple just received for technology that will allow them to selectively remove unwanted elements in music streams as people listen on various devices. Will that impact radio listening and radio?

A first reaction to this news might be, "There are billions of radio devices in homes and cars that won't be impacted by this technology. Radio has nothing to worry about." At first glance, I'd agree. After all, radio reaches almost every household, with most families owning several radios and 100 percent penetration in cars.

Yet I think we had the same reaction when Apple announced their first MP3 player and later announced they would be selling music. Most people in radio initially wrote those things off as non-events, and few of us understood Apple's vision -- which turned out to be a giant success. The same thing happened with the iPhone and apps, which again changed the game. But why would Apple bother with technology to remove commercials? Perhaps they have a vision we cannot see.

Radio may have a huge advantage for a while, until this technology is implemented in the streaming environment, where it could potentially remove spots that are inserted into streams. From what I can tell by reading the patent, it doesn't appear the technology can detect a commercial inserted in real time (though I may be wrong). In other words, the spots in your live stream would play, but those in a stream where ads are inserted individually could be removed. Of course, most of our streamed content includes inserted ads.

My biggest concern about this technology is that about half of all Internet activity takes place in a mobile environment, and a big chunk of that is on iPhones. Mobile makes up a significant portion of streamed listening, so radio has vulnerability there. And if Apple licenses this technology to other mobile devices, then the impact will be ever greater.

Perhaps an even bigger concern is that radio is about to lose its command of the automobile. Yesterday Sirius XM announced that 50 million cars are now satellite radio-enabled. (This is not a subscriber figure.) My prediction was that it would take satellite years to dominate the car. And I was wrong, it took 10 years. But satellite radio isn't my concern. An increasing number of new cars are now Internet-enabled and have iHeartRadio and TuneIn and Pandora on the dash, no subscription required. Radio's biggest listening takes place in the car. So as these devices and services penetrate, eventually, most radio listening will be streamed listening, in the car.

The New York Times Magazine recently reported that the current car fleet averages 11 years old and that the majority of cars will be replaced -- in fact, it's expected that 2015 will be the biggest car sales year in history because of that need to replace old vehicles. And that means that, by the end of 2015, virtually all cars will have in-dash Internet radio.

Do you see where this is going?

It's possible that all in-car listening by 2015-2020 will be online listening. Suddenly that transmitter's reach is reduced to in-home units. If Apple's commercial-replacement technology covers all your ads, then radio's business model is broken.

Perception may be the biggest problem we face. Advertisers seeing this announcement may naively think that audio advertising is dead or dying and switch to other alternatives. We all know how consumers and advertisers perceive Pandora, often based on inaccurate and exaggerated press reports. They continue to buy that story, and there's no reason to think they won't eventually believe that audio ads will be covered in all environments.

What Should Radio Do?

A natural reaction would be to fight this and find a way to prevent it. That would be a typical NAB approach. After all, no one should be allowed to alter our broadcasts -- though I'm not sure it can be prevented.

Another reaction would be to make consumers suddenly like commercials. We all know from focus groups that ads are disliked, even though in the same breath listeners will tell us ads are often how they find out about things going on in their communities. Though we can make commercials better, and should, I don't think that solves this problem.

Radio needs to take a serious look at its business model. Though commercials aired over the transmitter will likely continue to be heard, we need to assume mobile and in-car listening will dominate. And therefore we need to find new ways to generate income.

Radio needs to dig deeply into its creative soul and find out how we can generate new forms of revenue on our strengths: our relationships with listeners and our ability to move products. Though we may never see the radio spot die, we should assume it will die and seek new ways to replace that revenue.

We need to look at ways of placing audio advertisements seamlessly into our programming, so they can't be detected by this technology -- and we need to do it in ways that won't alienate our listeners. Perhaps that's a product-placement strategy; television increased product placement in response to the DVR, which allowed consumers to skip ads. Or perhaps the strength of some talent or some formats will allow us to command subscription revenues?

Chances are what needs to be done has not yet been invented, and it's time to start inventing it. If these predictions hold true, the clock is ticking, and we'll need to develop a new approach within the next couple of years.

Radio remains a tremendous industry because of our loyal audiences, but we should not get complacent or arrogant. Because of our success, everyone wants to take our audiences away -- and it's predictable that fickle listeners will follow innovative solutions they feel better meet their needs. The promise of radio with few or no commercials is inviting, and it's one of the strengths of Pandora. Plus, as the generation of baby boomers fades and the Internet generation gains a foothold, there is perhaps less loyalty to radio, and that will impact listening and advertising.

Radio has a promising future. These things should not frighten us, but they should not be ignored. A proactive response is what will help us remain strong.